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For most small business owners, one of the consistent concerns that keep them up at night is about whether the company has enough cash flow.
The key is keeping a close eye by monitoring the cash flow. The better you monitor the money that flows in and out of your business, the better are your relationships with employees, vendors, clients and customers as well as the overall wellbeing of your company.
"While money is the fuel that runs their business and next decision, it is also the reason they go out of business," states a 2019 report by Intuit and Wakefield Research, which surveyed thousands of small business owners about cash flow.
Cash Flow: A Common Struggle
Two-thirds of small business owners said they regularly struggle with cash flow, according to the study, which surveyed solopreneurs and companies with as many as 100 employees.
"It's the thing they lose sleep over," says the Intuit report, which surveyed 3,000 small businesses in the U.S. the UK, Australia, Canada and India as part of the study.
Sixty-nine percent of the small businesses surveyed said they've been kept up at night by concerns about cash flow.
So, what about the about 30 percent of business owners in the study that reported not being kept up at night worrying about cash flow?
What's causing them better peace of mind?
1. Understand how cash flow works to set the stage for success
A lack of understanding how cash flow works and poor cash flow management are among the top reason businesses fail, according to the Intuit research.
With that, it's critical as a small business owner to understand how to track your money's movement effectively to keep a positive cash flow.
"You want to generate more money than you're spending. This sounds simple, but plenty of profitable businesses run into cash flow problems," writes Kathryn Pomroy for the Intuit QuickBooks Resource Center website.
"It can be challenging to balance regular business expenses — like salaries, rent, and technology updates — with the sporadic revenue and periods of negative cash flow that can come from seasonal patterns or investments in growth."
2. Prioritize accounting to strengthen financial structure
Ritika Puri, cofounder of Storyhackers said failing to prioritize the accounting side of business placed the company's financial structure at risk as they experienced a cash flow challenge.
Puri said managing cash flow was one of the most important lessons she learned while growing the content services agency to a 28-person team.
"We learned the hard way that growth doesn't always correlate with cash flow," she writes in an article on the QuickBooks website.
3. Streamline payroll to get ahead of cash flow
In the Intuit report, 43 percent of small business owners said paying employees by their assigned payday was at risk because of cash flow issues. And 32 percent reported having to pay their employees after their paydays.
One way to create a more balanced income is by streamlining the way you're paying employees, according to an article by businessnewsdaily.com. A less frequent pay type could provide savings in administrative costs associated with collecting, verifying and organizing payroll information, says Alex Shvarts, CTO of FundKite, in the article.
"Implementing direct deposit can help stabilize your payroll withdrawals as well," Shvarts says. "If you already have a payroll system in place, be sure to assess any fees that may be associated with switching frequencies.
4. Delayed invoices causes payment delays
Thirty-three percent of the U.S. small business owners surveyed in the Intuit study said their companies currently have more than $20,000 in outstanding receivables. And, the average U.S. small business has $53,999 in outstanding receivables.
Nearly two thirds (66%) of small business owners report that the time it takes the money to process after receiving a payment has the largest impact on their company's cash flow, compared to not getting paid by customers or clients within the terms of the payment system.
While having those $5,000 invoices are great, it doesn't mean much when the money is not available to pay for your expenses. This is why you shouldn't wait to send out these invoices for the work you've completed. Instead of a monthly invoicing model, think about switching to a method where invoices are sent after a certain amount of work is completed, according to an article by businessnewsdaily.com.
The Price of Cash Flow Problems
Cash flow issues can cause small business owners big headaches and real harm to their business, from problems with paying vendors and employees to lost revenues.
Of those small business owners who reported cash flow issues in the Intuit research study, 32 percent said it left them unable to pay vendors, pay loans, or pay themselves or employees.
Fifty-two percent of U.S. small business owners in the survey said they had lost $10,000 or more by foregoing a project or sales specifically due to issues created by insufficient cash flow. And on average, according to the report, U.S. small business owners have lost $43,394 by not going through with a project or lost sales due to issues caused by insufficient cash flow.